Tesco is poised to take on the banks

SUPERMARKET Tesco is considering taking steps to allow its personal finance arm to borrow directly from wholesale markets as part of a push into retail banking, it has emerged. The retail giant is looking to establish Tesco Personal Finance (TPF) as a standalone bank, which could see it launch into the mortgage market.

SUPERMARKET Tesco is considering taking steps to allow its personal finance arm to borrow directly from wholesale markets as part of a push into retail banking, it has emerged.

The retail giant is looking to establish Tesco Personal Finance (TPF) as a standalone bank, which could see it launch into the mortgage market.

Tesco is mooting the need to secure a separate credit rating for its banking arm to be able to raise funds directly rather than through the parent group, although it stressed any mortgage launch would be at least two years' off.

The group's spokesman added that funding would also come principally from its burgeoning savings business.

A move into mortgages would be another step forward in an assault on the sector as Tesco looks to capitalise on a lack of confidence in banks following last autumn's financial crisis. The chain bought out former partner Royal Bank of Scotland last December and relaunched TPF as a savings brand.

It is also reportedly one of the suitors interested in acquiring Northern Rock from the government.

Tesco recently revealed plans to open 30 bank branches in its stores by the end of this year, with six of these already launched by mid-June. TPF has benefited from customer loyalty to the brand amid the banking woes, reporting a near-doubling of savings balances during and after the autumn meltdown - from £2.5bn in mid-October to more than £4.5bn by the end of February.

It added today that growth has continued at a quick pace, with £2bn in savings deposits in the space of six weeks.

The personal finance arm reported underlying profits before tax of £244m in the year to February 28.

While the insurance side of TPF still represents the lion's share of the business, accounting for 65 per cent of the underlying profits, this is set to change as it focuses heavily on banking services.

It is thought that a Tesco current account could come to market within 18 months.